States Take Up Health Reform Fight : Legislation: Governors and some unlikely allies lobby to change federal law barring local benefits regulation. Unions, insurers oppose effort.

WASHINGTON — Oops. Just when members of Congress and their exhausted staffs thought the bruising health care reform fight was behind them, a new skirmish is brewing.

Unable to agree on a national reform agenda, members are arguing over how much authority to cede to the states--an issue that has taken on new urgency now that the federal initiative is dead.

The latest controversy focuses on the 20-year-old Employee Retirement Income Security Act, which effectively bars states from regulating the health benefits of most of their residents.

In these waning days of Congress, many states are aggressively seeking individual exemptions from ERISA, without which their sweeping reform efforts will all but collapse.

Despite the stakes, however, the battle's outcome is highly uncertain. For one thing, as with so many other controversies in health care reform, this issue has led to some unlikely alliances.

Joining the nation's governors in arguing for greater state flexibility are many Democrats who long have championed federalism, including Sens. Daniel Patrick Moynihan of New York and Bob Graham of Florida and Rep. Ron Wyden of Oregon.

On the other side, closing ranks in the name of uniform national standards are big, multi-state employers, insurers and labor unions, joined by moderates and conservatives who otherwise have vigorously backed states rights, including Sens. Dave Durenberger (R-Minn.), John H. Chafee (R-R.I.), Don Nickles (R-Okla.), John C. Danforth (R-Mo.) and Richard C. Shelby (D-Ala.).

According to congressional sources, the struggle over state flexibility versus national uniformity was one of the more divisive issues within the bipartisan, "mainstream" coalition of 20 senators that sought, but ultimately failed, to craft a last-ditch compromise reform plan, prompting Senate Majority Leader George J. Mitchell (D-Me.) on Monday to throw in the towel on health care reform.

Still another factor contributing to the uncertainty of the outcome, Capitol Hill sources said, is the large number of senators who have publicly professed support for state flexibility only to tell colleagues behind closed doors that, in fact, they would not vote against the wishes of big, multi-state employers back home.

ERISA prevents states from interfering with the health plans of self-insured companies, which use their own assets to pay employees' medical claims. By giving exclusive jurisdiction over employee benefits to the federal government, the law "represents a terrible barrier" for reform-minded states, in the words of Debra J. Lipson, an analyst at the Alpha Center, a think tank here.

Multi-state employers and insurance companies tremble at the prospect of having to abide by up to 50 different sets of rules and regulations, saying that would increase administrative costs and disrupt the delivery of services.

"We need national rules in local markets," Durenberger said.

At the same time, unions oppose ERISA waivers because they fear that states, in seeking revenue to finance reform initiatives, will tax the health benefits of self-insured firms.

But many liberals in Congress, traditional union allies, support state flexibility--at least on this issue--because many of "the reforming states," as they call themselves, are moving to provide universal coverage.

Charlene Rydell, a Democratic state representative from Maine who chairs a coalition of 24 "states that can't wait," has been in town this week vigorously lobbying for waivers. "We've been going to a lot of (congressional) offices this week too," added Richard I. Smith, an analyst at the Assn. of Private Pension and Welfare Plans, a group of large employers.

The state most desperate for a waiver is Washington, which has passed a law that seeks universal coverage by requiring employers to pay at least 50% of a worker's insurance premiums--a concept that both President Clinton and his congressional allies sought to pass without success. Washington state's employer mandate would take effect on July 1--but only if Congress grants it a waiver.

Oregon's legislature has also adopted a mandatory workplace-based insurance law, scheduled to take effect in several years. But as one state official put it: "It goes down the toilet without a waiver."

Durenberger said Thursday that he expects waiver supporters to strike without warning, perhaps offering waivers for individual states as amendments to unrelated bills on the Senate floor.

"Every bill is an opportunity," Durenberger said, urging his allies to remain alert. ERISA waivers would lead to the law's "evisceration," he said.

If the advocates of ERISA waivers fail in the remaining days of the 103rd Congress, they are widely expected to take up the issue in the new Congress next January.

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"It will be one of the real hot issues leading off next year," said a senior Senate health aide.